##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 UNITED COMMUNITY FINANCIAL CORP.
 
  OHIO
    
    0-024399
    
    34-1856319(State or other jurisdiction of incorporation)
    
    (Commission File No.)
    
    (IRS Employer I.D. No.)
  
  (330) 742-0500
  
   þ o
  Large accelerated filer oAccelerated filer þNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o  o þ




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##### 



TABLE OF CONTENTS
 PAGEPart I.    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Statements of Financial Condition as of June 30, 2008 (Unaudited) and December 31, 2007
    
    1Consolidated Statements of Income for the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)
    
    2Consolidated Statement of Shareholders Equity for the Six Months ended June 30, 2008 (Unaudited)
    
    3Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007 (Unaudited)
    
    4Notes to Consolidated Financial Statements
    
    5 - 15Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    16-26Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    27Item 4.
    
    Controls and Procedures
    
    28Part II.    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    29Item 1A.
    
    Risk Factors
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    29Item 3.
    
    Defaults Upon Senior Securities (None)Item 4.
    
    Submission of Matters to a Vote of Security Holders (None)Item 5.
    
    Other Information (None)Item 6.
    
    Exhibits
    
    29Signatures
    
    
    
    30Exhibits
    
    
    
    31-34EX-31.1EXX-31.2EX-32




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 
 UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
 June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Assets:Cash and deposits with banks
    
    $
    38,660
    
    
    $
    33,266Federal funds sold and other
    
    
    5,260
    
    
    
    4,097Total cash and cash equivalents
    
    
    43,920
    
    
    
    37,363Securities:Trading, at fair value
    
    
    8,691
    
    
    
    5,064Available for sale, at fair value
    
    
    309,413
    
    
    
    244,753Loans, net of allowance for loan losses of $28,900 and $32,006, respectively
    
    
    2,209,924
    
    
    
    2,236,988Loans held for sale
    
    
    11,237
    
    
    
    87,236Federal Home Loan Bank stock, at cost
    
    
    26,112
    
    
    
    25,432Premises and equipment, net
    
    
    26,777
    
    
    
    27,521Accrued interest receivable
    
    
    11,444
    
    
    
    13,077Real estate owned and other repossessed assets
    
    
    21,517
    
    
    
    10,510Goodwill
    
    
    33,593
    
    
    
    33,593Core deposit intangible
    
    
    1,018
    
    
    
    1,169Cash surrender value of life insurance
    
    
    24,524
    
    
    
    24,053Other assets
    
    
    18,991
    
    
    
    13,280Total assets
    
    $
    2,747,161
    
    
    $
    2,760,039Liabilities and Shareholders EquityLiabilities:Deposits:Interest bearing
    
    $
    1,739,503
    
    
    $
    1,768,757Non-interest bearing
    
    
    114,889
    
    
    
    106,449Total deposits
    
    
    1,854,392
    
    
    
    1,875,206Federal Home Loan Bank advances
    
    
    444,209
    
    
    
    437,253Repurchase agreements and other borrowings
    
    
    154,544
    
    
    
    149,533Advance payments by borrowers for taxes and insurance
    
    
    12,789
    
    
    
    17,853Accrued interest payable
    
    
    4,852
    
    
    
    7,837Accrued expenses and other liabilities
    
    
    7,195
    
    
    
    2,643Total liabilities
    
    
    2,477,981
    
    
    
    2,490,325Shareholders EquityPreferred stock-no par value; 1,000,000 shares authorized and unissued
    
    
    
    
    
    
    Common stock-no par value; 499,000,000 shares authorized; 37,804,457
shares issued and 30,051,773 shares outstanding
    
    
    146,855
    
    
    
    146,683Retained earnings
    
    
    216,435
    
    
    
    213,727Accumulated other comprehensive income (loss)
    
    
    (3,664
    )
    
    
    661Unearned employee stock ownership plan shares
    
    
    (8,554
    )
    
    
    (9,465
    )Treasury stock, at cost, 7,752,684 shares
    
    
    (81,892
    )
    
    
    (81,892
    )Total shareholders equity
    
    
    269,180
    
    
    
    269,714Total liabilities and shareholders equity
    
    $
    2,747,161
    
    
    $
    2,760,039
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in thousands)
    
    
    (Dollars in thousands)Interest incomeLoans
    
    $
    33,935
    
    
    $
    37,915
    
    
    $
    69,743
    
    
    $
    76,918Loans held for sale
    
    
    88
    
    
    
    289
    
    
    
    276
    
    
    
    545SecuritiesTrading
    
    
    68
    
    
    
    63
    
    
    
    130
    
    
    
    125Available for sale
    
    
    3,857
    
    
    
    3,099
    
    
    
    7,155
    
    
    
    6,033Federal Home Loan Bank stock dividend
    
    
    348
    
    
    
    412
    
    
    
    680
    
    
    
    812Other interest earning assets
    
    
    93
    
    
    
    226
    
    
    
    261
    
    
    
    396Total interest income
    
    
    38,389
    
    
    
    42,004
    
    
    
    78,245
    
    
    
    84,829Interest expenseDeposits
    
    
    14,510
    
    
    
    16,828
    
    
    
    31,546
    
    
    
    33,550Federal Home Loan Bank advances
    
    
    3,191
    
    
    
    5,280
    
    
    
    6,883
    
    
    
    10,627Repurchase agreements and other
    
    
    1,638
    
    
    
    1,744
    
    
    
    3,664
    
    
    
    3,099Total Interest Expense
    
    
    19,339
    
    
    
    23,852
    
    
    
    42,093
    
    
    
    47,276Net interest income
    
    
    19,050
    
    
    
    18,152
    
    
    
    36,152
    
    
    
    37,553Provision for loan losses
    
    
    3,248
    
    
    
    2,744
    
    
    
    5,714
    
    
    
    5,069Net interest income after provision for
loan losses
    
    
    15,802
    
    
    
    15,408
    
    
    
    30,438
    
    
    
    32,484Noninterest incomeBrokerage commissions
    
    
    7,062
    
    
    
    7,049
    
    
    
    13,640
    
    
    
    13,289Service fees and other charges
    
    
    4,005
    
    
    
    3,770
    
    
    
    7,460
    
    
    
    7,343Underwriting and investment banking
    
    
    206
    
    
    
    212
    
    
    
    235
    
    
    
    245Net gains (losses):Securities available for sale
    
    
    57
    
    
    
    
    
    
    
    988
    
    
    
    Trading securities
    
    
    (22
    )
    
    
    43
    
    
    
    (49
    )
    
    
    48Loans sold
    
    
    395
    
    
    
    524
    
    
    
    2,579
    
    
    
    1,187Other
    
    
    (1,533
    )
    
    
    (379
    )
    
    
    (1,673
    )
    
    
    (403
    )Other income
    
    
    1,194
    
    
    
    998
    
    
    
    2,301
    
    
    
    1,925Total noninterest income
    
    
    11,364
    
    
    
    12,217
    
    
    
    25,481
    
    
    
    23,634Noninterest expensesSalaries and employee benefits
    
    
    14,902
    
    
    
    14,359
    
    
    
    29,631
    
    
    
    28,641Occupancy
    
    
    1,285
    
    
    
    1,208
    
    
    
    2,621
    
    
    
    2,356Equipment and data processing
    
    
    2,135
    
    
    
    2,306
    
    
    
    4,474
    
    
    
    4,621Franchise tax
    
    
    556
    
    
    
    550
    
    
    
    1,147
    
    
    
    1,114Advertising
    
    
    360
    
    
    
    390
    
    
    
    739
    
    
    
    707Amortization of core deposit intangible
    
    
    73
    
    
    
    93
    
    
    
    151
    
    
    
    193Other expenses
    
    
    3,787
    
    
    
    2,594
    
    
    
    6,850
    
    
    
    5,110Total noninterest expenses
    
    
    23,098
    
    
    
    21,500
    
    
    
    45,613
    
    
    
    42,742Income before income taxes
    
    
    4,068
    
    
    
    6,125
    
    
    
    10,306
    
    
    
    13,376Income taxes
    
    
    1,339
    
    
    
    2,195
    
    
    
    3,534
    
    
    
    4,776Net income
    
    $
    2,729
    
    
    $
    3,930
    
    
    $
    6,772
    
    
    $
    8,600Comprehensive income (loss)
    
    $
    (3,731
    )
    
    $
    1,119
    
    
    $
    2,447
    
    
    $
    6,227Earnings per share:Basic
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.30Diluted
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.24
    
    
    $
    0.29
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See Notes to Consolidated Financial Statements.
 
 UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(Unaudited)
 Accumulated
    
    
    UnearnedOther
    
    
    EmployeeShares
    
    
    Common
    
    
    Retained
    
    
    Comprehensive
    
    
    Stock Ownership
    
    
    TreasuryOutstanding
    
    
    Stock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Plan Shares
    
    
    Stock
    
    
    Total(Dollars in thousands, except share data)Balance December 31, 2007
    
    
    30,052
    
    
    $
    146,683
    
    
    $
    213,727
    
    
    $
    661
    
    
    $
    (9,465
    )
    
    $
    (81,892
    )
    
    $
    269,714Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    6,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,772Change in net unrealized gain/(loss)
on securities, net of taxes of $2,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,325
    )
    
    
    
    
    
    
    
    
    
    
    (4,325
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,447Shares allocated to ESOP participants
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    911
    
    
    
    
    
    
    
    922Stock based compensation
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161Dividends paid, $0.1425 per share
    
    
    
    
    
    
    
    
    
    
    (4,064
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,064
    )Balance June 30, 2008
    
    
    30,052
    
    
    $
    146,855
    
    
    $
    216,435
    
    
    $
    (3,664
    )
    
    $
    (8,554
    )
    
    $
    (81,892
    )
    
    $
    269,180
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,2008
    
    
    2007(Dollars in thousands)Cash Flows from Operating ActivitiesNet income
    
    $
    6,772
    
    
    $
    8,600Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan losses
    
    
    5,714
    
    
    
    5,069Net gains on loans held for sale and other assets
    
    
    (1,845
    )
    
    
    (784
    )Amortization of premiums and accretion of discounts
    
    
    608
    
    
    
    995Depreciation and amortization
    
    
    1,461
    
    
    
    1,559ESOP compensation
    
    
    922
    
    
    
    1,632Stock based compensation
    
    
    161
    
    
    
    FHLB stock dividends
    
    
    (680
    )
    
    
    (Increase) decrease in trading securities
    
    
    (3,676
    )
    
    
    3,155Decrease in interest receivable
    
    
    1,633
    
    
    
    535Increase in prepaid and other assets
    
    
    (6,656
    )
    
    
    (4,321
    )(Decrease) increase in interest payable
    
    
    (2,985
    )
    
    
    3,375Net principal disbursed on loans held for sale
    
    
    (106,334
    )
    
    
    (109,845
    )Proceeds from sale of loans held for sale
    
    
    184,912
    
    
    
    121,455Decrease in other liabilities
    
    
    6,880
    
    
    
    115Net cash from operating activities
    
    
    86,887
    
    
    
    31,540Cash Flows from Investing ActivitiesProceeds from principal repayments and maturities of:Available for sale securities
    
    
    38,947
    
    
    
    29,990Proceeds from sale of:Available for sale securities
    
    
    49,399
    
    
    
    Real estate owned and other repossessed assets
    
    
    5,863
    
    
    
    1,693Purchases of securities available for sale
    
    
    (158,665
    )
    
    
    (45,717
    )Net principal repaid (disbursed) on loans
    
    
    57,006
    
    
    
    81,854Loans purchased
    
    
    (54,207
    )
    
    
    (90,897
    )Purchases of premises and equipment
    
    
    (698
    )
    
    
    (2,328
    )Net cash from investing activities
    
    
    (62,355
    )
    
    
    (25,405
    )Cash Flows from Financing ActivitiesNet increase in NOW, savings and money market accounts
    
    
    68,463
    
    
    
    27,235Net decrease in certificates of deposit
    
    
    (89,277
    )
    
    
    (48,919
    )Net decrease in advance payments by borrowers
for taxes and insurance
    
    
    (5,064
    )
    
    
    (3,113
    )Proceeds from FHLB advances
    
    
    405,700
    
    
    
    404,453Repayment of FHLB advances
    
    
    (398,744
    )
    
    
    (416,892
    )Net change in other borrowed funds
    
    
    5,011
    
    
    
    43,628Dividends paid
    
    
    (4,064
    )
    
    
    (5,481
    )Proceeds from the exercise of stock options
    
    
    
    
    
    
    153Purchase of treasury stock
    
    
    
    
    
    
    (8,518
    )Net cash from financing activities
    
    
    (17,975
    )
    
    
    (7,454
    )Increase (decrease) in cash and cash equivalents
    
    
    6,557
    
    
    
    (1,319
    )Cash and cash equivalents, beginning of period
    
    
    37,363
    
    
    
    35,637Cash and cash equivalents, end of period
    
    $
    43,920
    
    
    $
    34,318
 See Notes to Consolidated Financial Statements.
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UNITED COMMUNITY FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. BASIS OF PRESENTATION
     2. RECENT ACCOUNTING DEVELOPMENTS
 Accounting for Deferred Compensation and Postretirement Benefits Aspects of Endorsement
Split-Dollar Life Insurance Arrangement
 Fair Value Measurements Effective Date of FASB
Statement No. 157
 The Fair Value Option for Financial Assets and
Financial Liabilities
 Written Loan Commitments
Recorded at Fair Value through Earnings Application of
Accounting Principles to Loan Commitments
 5




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Business
Combinations
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51
 Disclosures
about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133
 The Hierarchy of
Generally Accepted Accounting Principles
 Accounting for Transfers of
Financial Assets and Repurchase Financing Transactions
 Determination of the Useful Life of
Intangible Assets
 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
 Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
 6




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3. STOCK COMPENSATION
     For the six months ended June 30, 2008AggregateWeighted
    
    
    intrinsicaverage
    
    
    value (inShares
    
    
    exercise price
    
    
    thousands)Outstanding at beginning of year
    
    
    2,043,856
    
    
    $
    9.66Granted
    
    
    237,072
    
    
    
    6.05Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (475
    )
    
    
    12.73Outstanding at end of period
    
    
    2,280,453
    
    
    $
    9.28
    
    
    $
    Options exercisable at end of period
    
    
    2,280,453
    
    
    $
    9.28
    
    
    $
    
  June 30,2008Intrinsic value of options exercised
    
    $
    Cash received from option exercises
    
    
    Tax benefit realized from option exercises
    
    
    Weighted average fair value of options granted
    
    
    
  7




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Risk-free interest rate
    
    
    3.03
    %Expected term (years)
    
    
    5Expected stock volatility
    
    
    23.8Dividend yield
    
    
    6.28
    %
  4. SECURITIES
  June 30, 2008
    
    
    December 31, 2007(Dollars in thousands)Gross
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    GrossFair
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    UnrealizedValue
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Gains
    
    
    LossesU.S. Treasury and
government
sponsored entities
securities
    
    $
    49,835
    
    
    $
    209
    
    
    $
    (324
    )
    
    $
    84,388
    
    
    $
    337
    
    
    $
    (126
    )Equity securities
    
    
    6,242
    
    
    
    64
    
    
    
    (1,160
    )
    
    
    7,064
    
    
    
    221
    
    
    
    (494
    )Mortgage-related securities
    
    
    253,336
    
    
    
    163
    
    
    
    (5,132
    )
    
    
    153,301
    
    
    
    977
    
    
    
    (443
    )Total
    
    $
    309,413
    
    
    $
    436
    
    
    $
    (6,616
    )
    
    $
    244,753
    
    
    $
    1,535
    
    
    $
    (1,063
    )
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)US Treasury and government sponsored entities
    
    $
    1,136
    
    
    $
    1,054State and municipal obligations
    
    
    7,171
    
    
    
    3,636Corporate bonds, debentures and notes
    
    
    94
    
    
    
    62Mutual funds
    
    
    290
    
    
    
    312Total trading securities
    
    $
    8,691
    
    
    $
    5,064
 8




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##### Table of Contents



5. LOANS
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Real Estate:One- to four-family residential
    
    $
    875,115
    
    
    $
    871,019Multifamily residential
    
    
    188,000
    
    
    
    179,535Nonresidential
    
    
    373,201
    
    
    
    359,070Land
    
    
    23,541
    
    
    
    22,818Construction:One- to four-family residential
    
    
    305,335
    
    
    
    357,153Multifamily and non-residential
    
    
    27,771
    
    
    
    25,191Total real estate
    
    
    1,792,963
    
    
    
    1,814,786Consumer
    
    
    349,706
    
    
    
    349,447Commercial
    
    
    94,447
    
    
    
    103,208Total loans
    
    
    2,237,116
    
    
    
    2,267,441Less:Allowance for loan losses
    
    
    28,900
    
    
    
    32,006Deferred loan fees, net
    
    
    (1,708
    )
    
    
    (1,553
    )Total
    
    
    27,192
    
    
    
    30,453Loans, net
    
    $
    2,209,924
    
    
    $
    2,236,988
  As of or For the
    
    
    As of or For theSix Months Ended
    
    
    Year EndedJune 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    32,006
    
    
    $
    16,955Provision for loan losses
    
    
    5,714
    
    
    
    28,750Amounts charged off
    
    
    (9,277
    )
    
    
    (14,220
    )Recoveries
    
    
    457
    
    
    
    521Balance, end of period
    
    $
    28,900
    
    
    $
    32,006
  9




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As of or for the
    
    
    As of or for theSix Months Ended
    
    
    Year EndedJune 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Impaired loans on which no specific valuation allowance was provided
    
    $
    34,735
    
    
    $
    30,475Impaired loans on which a specific valuation allowance was provided
    
    
    43,094
    
    
    
    53,902Total impaired loans at period-end
    
    $
    77,829
    
    
    $
    84,377Specific valuation allowances on impaired loans at period-end
    
    $
    8,140
    
    
    $
    13,165Average impaired loans during the period
    
    
    82,486
    
    
    
    63,468Interest income recognized on impaired loans during the period
    
    
    376
    
    
    
    348Interest income received on impaired loans during the period
    
    
    376
    
    
    
    348
 6. MORTGAGE BANKING ACTIVITIES
   As of or for theSix Months
    
    
    As of or for theEnded
    
    
    Year EndedJune 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    6,184
    
    
    $
    6,820Originations
    
    
    1,047
    
    
    
    1,268Sale of servicing
    
    
    
    
    
    
    Amortized to expense
    
    
    (1,035
    )
    
    
    (1,904
    )Balance, end of period
    
    $
    6,196
    
    
    $
    6,184
  June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)Balance, beginning of year
    
    $
    (562
    )
    
    $
    (435
    )Impairment charges
    
    
    
    
    
    
    (562
    )Recoveries
    
    
    562
    
    
    
    435Balance, end of period
    
    $
    
    
    
    $
    (562
    )
  10




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##### Table of Contents



June 30,
    
    
    December 31,2008
    
    
    2007Weighted average prepayment rate
    
    267 PSA
    
    
    272 PSAWeighted average life (in years)
    
    
    3.78
    
    
    
    3.87Weighted average discount rate
    
    
    8%
    
    
    
    8%
 7. OTHER POSTRETIREMENT BENEFIT PLANS
   Three Months Ended June 30,2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    48
    
    
    
    55Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    (3
    )
    
    
    Net periodic benefit cost
    
    $
    45
    
    
    $
    55Assumptions used in the valuations
were as follows:Weighted average discount rate
    
    
    6.00
    %
    
    
    5.50
    %
 Six Months Ended June 30,2008
    
    
    2007(Dollars in thousands)Service cost
    
    $
    
    
    
    $
    Interest cost
    
    
    96
    
    
    
    111Expected return on plan assets
    
    
    
    
    
    
    Net amortization of prior service cost
    
    
    
    
    
    
    Net amortization of actuarial gain
    
    
    (6
    )
    
    
    Net periodic benefit cost
    
    $
    90
    
    
    $
    111Assumptions used in the valuations
were as follows:Weighted average discount rate
    
    
    6.00
    %
    
    
    5.50
    %
 11




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##### Table of Contents



8. FAIR VALUE MEASUREMENT
        Fair Value Measurements at June 30, 2008 Using:Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableIdentical Assets
    
    
    Inputs
    
    
    InputsJune 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Trading securities
    
    $
    8,691
    
    
    $
    8,691
    
    
    $
    
    
    
    $
    Available for sale securities
    
    
    309,413
    
    
    
    1,742
    
    
    
    307,671
    
    
    
    Impaired loans
    
    
    43,094
    
    
    
    
    
    
    
    
    
    
    
    34,954
  12




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##### Table of Contents



9. STATEMENT OF CASH FLOWS SUPPLEMENTAL DISCLOSURE
  June 30, 2008
    
    
    June 30, 2007(Dollars in thousands)Supplemental disclosures of cash flow informationCash paid during the period for:Interest on deposits and borrowings, net of amounts capitalized
    
    $
    45,078
    
    
    $
    43,901Interest capitalized on borrowings
    
    
    
    
    
    
    13Income taxes
    
    
    3,825
    
    
    
    6,881Supplemental schedule of noncash activities:Transfers from loans to real estate owned and other repossessed assets
    
    
    18,545
    
    
    
    8,687
 10. SEGMENT INFORMATION
  For the Three Months Ended June 30, 2008Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    38,202
    
    
    $
    187
    
    
    $
    38,389Interest expense
    
    
    19,287
    
    
    
    52
    
    
    
    19,339Provision for loan loss
    
    
    3,248
    
    
    
    
    
    
    
    3,248Net interest income after
provision for loan loss
    
    
    15,667
    
    
    
    135
    
    
    
    15,802Non-interest income
    
    
    2,908
    
    
    
    8,456
    
    
    
    11,364Non-interest expense
    
    
    15,161
    
    
    
    7,937
    
    
    
    23,098Income before tax
    
    
    3,414
    
    
    
    654
    
    
    
    4,068Income tax expense
    
    
    1,110
    
    
    
    229
    
    
    
    1,339Net income
    
    $
    2,304
    
    
    $
    425
    
    
    $
    2,729
 For the Three Months Ended June 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    41,696
    
    
    $
    308
    
    
    $
    42,004Interest expense
    
    
    23,761
    
    
    
    91
    
    
    
    23,852Provision for loan loss
    
    
    2,744
    
    
    
    
    
    
    
    2,744Net interest income after
provision for loan loss
    
    
    15,191
    
    
    
    217
    
    
    
    15,408Non-interest income
    
    
    3,698
    
    
    
    8,519
    
    
    
    12,217Non-interest expense
    
    
    13,760
    
    
    
    7,740
    
    
    
    21,500Income before tax
    
    
    5,129
    
    
    
    996
    
    
    
    6,125Income tax expense
    
    
    1,864
    
    
    
    331
    
    
    
    2,195Net income
    
    $
    3,265
    
    
    $
    665
    
    
    $
    3,930
 13




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##### Table of Contents



For the Six Months Ended June 30, 2008Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    77,829
    
    
    $
    416
    
    
    $
    78,245Interest expense
    
    
    41,972
    
    
    
    121
    
    
    
    42,093Provision for loan loss
    
    
    5,714
    
    
    
    
    
    
    
    5,714Net interest income after
provision for loan loss
    
    
    30,143
    
    
    
    295
    
    
    
    30,438Non-interest income
    
    
    9,180
    
    
    
    16,301
    
    
    
    25,481Non-interest expense
    
    
    30,125
    
    
    
    15,488
    
    
    
    45,613Income before tax
    
    
    9,198
    
    
    
    1,108
    
    
    
    10,306Income tax expense
    
    
    3,129
    
    
    
    405
    
    
    
    3,534Net income
    
    $
    6,069
    
    
    $
    703
    
    
    $
    6,772
 For the Six Months Ended June 30, 2007Banking
    
    
    InvestmentServices
    
    
    Services
    
    
    Total(Dollars in thousands)Interest income
    
    $
    84,265
    
    
    $
    564
    
    
    $
    84,829Interest expense
    
    
    47,092
    
    
    
    184
    
    
    
    47,276Provision for loan loss
    
    
    5,069
    
    
    
    
    
    
    
    5,069Net interest income after
provision for loan loss
    
    
    32,104
    
    
    
    380
    
    
    
    32,484Non-interest income
    
    
    7,315
    
    
    
    16,319
    
    
    
    23,634Non-interest expense
    
    
    27,848
    
    
    
    14,894
    
    
    
    42,742Income before tax
    
    
    11,571
    
    
    
    1,805
    
    
    
    13,376Income tax expense
    
    
    4,162
    
    
    
    614
    
    
    
    4,776Net income
    
    $
    7,409
    
    
    $
    1,191
    
    
    $
    8,600
 14




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##### Table of Contents



11. EARNINGS PER SHARE
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Net income applicable to common stock
    
    $
    2,729
    
    
    $
    3,930
    
    
    $
    6,772
    
    
    $
    8,600Weighted average common shares outstanding
    
    
    28,618
    
    
    
    28,769
    
    
    
    28,557
    
    
    
    28,946Dilutive effect of stock options
    
    
    21
    
    
    
    255
    
    
    
    5
    
    
    
    291Weighted average common shares outstanding
for dilutive computation
    
    
    28,639
    
    
    
    29,024
    
    
    
    28,562
    
    
    
    29,237Basic earnings per share as reported
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.30Diluted earnings per share as reported
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.24
    
    
    $
    0.29
 12. OTHER BORROWINGS
    15




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Selected financial ratios and other data: (1)
 At or For the Three
    
    At or For the SixMonths Ended
    
    Months EndedJune 30,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Performance ratios:Return on average assets (2)
    
    
    0.40
    %
    
    
    0.58
    %
    
    
    0.49
    %
    
    
    0.64
    %Return on average equity (3)
    
    
    3.82
    %
    
    
    5.49
    %
    
    
    4.77
    %
    
    
    5.99
    %Interest rate spread (4)
    
    
    2.61
    %
    
    
    2.37
    %
    
    
    2.43
    %
    
    
    2.47
    %Net interest margin (5)
    
    
    2.96
    %
    
    
    2.83
    %
    
    
    2.79
    %
    
    
    2.93
    %Non-interest expense to average assets
    
    
    3.37
    %
    
    
    3.18
    %
    
    
    3.32
    %
    
    
    3.16
    %Efficiency ratio (6)
    
    
    72.15
    %
    
    
    69.72
    %
    
    
    72.89
    %
    
    
    69.14
    %Average interest-earning assets to average interest-bearing
liabilities
    
    
    111.56
    %
    
    
    112.49
    %
    
    
    111.61
    %
    
    
    112.60
    %Capital ratios:Average equity to average assets
    
    
    10.42
    %
    
    
    10.58
    %
    
    
    10.35
    %
    
    
    10.61
    %Equity to assets, end of period
    
    
    9.80
    %
    
    
    10.17
    %
    
    
    9.80
    %
    
    
    10.17
    %Tier 1 leverage ratio
    
    
    7.77
    %
    
    
    7.95
    %
    
    
    7.77
    %
    
    
    7.95
    %Tier 1 risk-based capital ratio
    
    
    9.86
    %
    
    
    9.96
    %
    
    
    9.86
    %
    
    
    9.96
    %Total risk-based capital ratio
    
    
    11.77
    %
    
    
    12.29
    %
    
    
    11.77
    %
    
    
    12.29
    %Asset quality ratios:Nonperforming loans to net loans at end of period (7)
    
    
    4.44
    %
    
    
    3.30
    %
    
    
    4.44
    %
    
    
    3.30
    %Nonperforming assets to average assets (8)
    
    
    4.36
    %
    
    
    3.10
    %
    
    
    4.36
    %
    
    
    3.10
    %Nonperforming assets to total assets at end of period
    
    
    4.35
    %
    
    
    3.10
    %
    
    
    4.35
    %
    
    
    3.10
    %Allowance for loan losses as a percent of loans
    
    
    1.29
    %
    
    
    0.86
    %
    
    
    1.29
    %
    
    
    0.86
    %Allowance for loan losses as a percent of non-performing loans (7)
    
    
    29.45
    %
    
    
    26.17
    %
    
    
    29.45
    %
    
    
    26.17
    %Office data:Number of full service banking offices
    
    
    39
    
    
    
    38
    
    
    
    39
    
    
    
    38Number of loan production offices
    
    
    6
    
    
    
    5
    
    
    
    6
    
    
    
    5Number of brokerage offices
    
    
    21
    
    
    
    20
    
    
    
    21
    
    
    
    20Number of trust offices
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Per share data:Basic earnings per share (9)
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.24
    
    
    $
    0.30Diluted earnings per share (9)
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.24
    
    
    $
    0.29Book value (10)
    
    $
    8.96
    
    
    $
    9.11
    
    
    $
    8.96
    
    
    $
    9.11Tangible book value (11)
    
    $
    7.81
    
    
    $
    7.95
    
    
    $
    7.81
    
    
    $
    7.95Market value as a percent of book value (12)
    
    
    42
    %
    
    
    110
    %
    
    
    42
    %
    
    
    110
    %
 
 (1)
    
    Ratios for the three and six month periods are annualized where appropriate.(2)
    
    Net income divided by average total assets.(3)
    
    Net income divided by average total equity.(4)
    
    Difference between weighted average yield on interest-earning assets and weighted average cost of interest-bearing liabilities.(5)
    
    Net interest income as a percentage of average interest-earning assets.(6)
    
    Noninterest expense, excluding the amortization of core deposit intangible, divided by the sum of net interest income and noninterest income, excluding gains and losses on securities and other.(7)
    
    Nonperforming loans consist of loans ninety days past due, loans less than ninety days past due and not accruing interest and restructured loans.(8)
    
    Nonperforming assets consist of nonperforming loans and real estate owned and other repossessed assets.(9)
    
    Earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share are computed using the weighted
average number of common shares determined for the basic computation plus the dilutive effect of potential common shares that could be issued under outstanding stock options.(10)
    
    Equity divided by number of shares outstanding.(11)
    
    Equity minus goodwill and core deposit intangible divided by number of shares outstanding.(12)
    
    Market value divided by book value. 16




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##### Table of Contents



Forward Looking Statements
  Comparison of Financial Condition at June 30, 2008 and December 31, 2007
       17




---



##### Table of Contents



Allowance For Loan LossesDecember 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 30,2007
    
    
    Provision
    
    
    Recovery
    
    
    Chargeoff
    
    
    2008Real Estate LoansPermanentOne-to four-family
    
    $
    2,803
    
    
    $
    1,064
    
    
    $
    5
    
    
    $
    (764
    )
    
    $
    3,108Multifamily residential
    
    
    2,365
    
    
    
    946
    
    
    
    3
    
    
    
    (243
    )
    
    
    3,071Nonresidential
    
    
    4,488
    
    
    
    3
    
    
    
    3
    
    
    
    (575
    )
    
    
    3,919Land
    
    
    629
    
    
    
    (92
    )
    
    
    
    
    
    
    
    
    
    
    537Total
    
    
    10,285
    
    
    
    1,921
    
    
    
    11
    
    
    
    (1,582
    )
    
    
    10,635Construction LoansOne-to four-family residential
    
    
    11,892
    
    
    
    1,269
    
    
    
    
    
    
    
    (5.195
    )
    
    
    7,966Multifamily and nonresidential
    
    
    607
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    633Total
    
    
    12,499
    
    
    
    1,295
    
    
    
    
    
    
    
    (5,195
    )
    
    
    8,599Consumer LoansHome Equity
    
    
    1,260
    
    
    
    830
    
    
    
    
    
    
    
    (146
    )
    
    
    1,944Auto
    
    
    447
    
    
    
    (13
    )
    
    
    29
    
    
    
    (55
    )
    
    
    408Marine
    
    
    1,468
    
    
    
    (124
    )
    
    
    59
    
    
    
    (316
    )
    
    
    1,087Recreational vehicle
    
    
    2,050
    
    
    
    (214
    )
    
    
    78
    
    
    
    (243
    )
    
    
    1,671Other
    
    
    260
    
    
    
    208
    
    
    
    179
    
    
    
    (289
    )
    
    
    358Total
    
    
    5,485
    
    
    
    687
    
    
    
    345
    
    
    
    (1,049
    )
    
    
    5,468Commercial LoansSecured
    
    
    2,375
    
    
    
    988
    
    
    
    
    
    
    
    (1,401
    )
    
    
    1,962Unsecured
    
    
    1,362
    
    
    
    823
    
    
    
    101
    
    
    
    (50
    )
    
    
    2,236Total
    
    
    3,737
    
    
    
    1,811
    
    
    
    101
    
    
    
    (1,451
    )
    
    
    4,198Total Allowance
    
    $
    32,006
    
    
    $
    5,714
    
    
    $
    457
    
    
    $
    (9,277
    )
    
    $
    28,900
 18




---



##### Table of Contents



Nonperforming LoansJune 30,
    
    
    December 31,
    
    
    
    
    
    
    2008 Interest2008
    
    
    2007
    
    
    Change
    
    
    ForegoneReal Estate LoansPermanentOne-to four-family
    
    $
    15,845
    
    
    $
    12,752
    
    
    $
    3,093
    
    
    $
    294Multifamily residential
    
    
    17,641
    
    
    
    13,604
    
    
    
    4,037
    
    
    
    570Nonresidential
    
    
    9,719
    
    
    
    13,597
    
    
    
    (3,878
    )
    
    
    (259
    )Land
    
    
    3,700
    
    
    
    3,700
    
    
    
    
    
    
    
    218Total
    
    
    46,905
    
    
    
    43,653
    
    
    
    3,252
    
    
    
    823Construction LoansOne-to four-family residential
    
    
    39,122
    
    
    
    44,680
    
    
    
    (5,558
    )
    
    
    (326
    )Multifamily and nonresidential
    
    
    825
    
    
    
    825
    
    
    
    
    
    
    
    51Total
    
    
    39,947
    
    
    
    45,505
    
    
    
    (5,558
    )
    
    
    (275
    )Consumer LoansHome Equity
    
    
    3,263
    
    
    
    2,454
    
    
    
    809
    
    
    
    92Auto
    
    
    197
    
    
    
    211
    
    
    
    (14
    )
    
    
    (2
    )Marine
    
    
    1,346
    
    
    
    1,714
    
    
    
    (368
    )
    
    
    43Recreational vehicle
    
    
    392
    
    
    
    376
    
    
    
    16
    
    
    
    8Other
    
    
    24
    
    
    
    64
    
    
    
    (40
    )
    
    
    Total
    
    
    5,222
    
    
    
    4,819
    
    
    
    403
    
    
    
    141Commercial LoansSecured
    
    
    2,571
    
    
    
    4,554
    
    
    
    (1,983
    )
    
    
    74Unsecured
    
    
    341
    
    
    
    184
    
    
    
    157
    
    
    
    62Total
    
    
    2,912
    
    
    
    4,738
    
    
    
    (1,826
    )
    
    
    136Restructured Loans
    
    
    3,131
    
    
    
    2,341
    
    
    
    790
    
    
    
    Total Nonperforming Loans
    
    $
    98,117
    
    
    $
    101,056
    
    
    $
    (2,939
    )
    
    $
    825
   19




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##### Table of Contents



Impaired LoansJune 30,
    
    
    December 31,2008
    
    
    2007
    
    
    ChangeReal Estate LoansPermanentOne-to four-family
    
    $
    2,356
    
    
    $
    2,681
    
    
    $
    (325
    )Multifamily residential
    
    
    17,921
    
    
    
    13,604
    
    
    
    4,317Nonresidential
    
    
    10,067
    
    
    
    13,597
    
    
    
    (3,530
    )Land
    
    
    3,700
    
    
    
    3,700
    
    
    
    Total
    
    
    34,044
    
    
    
    33,582
    
    
    
    462Construction LoansOne-to four-family residential
    
    
    38,704
    
    
    
    43,518
    
    
    
    (4,814
    )Multifamily and nonresidential
    
    
    825
    
    
    
    825
    
    
    
    Total
    
    
    39,529
    
    
    
    44,343
    
    
    
    (4,814
    )Consumer LoansHome Equity
    
    
    
    
    
    
    
    
    
    
    Auto
    
    
    
    
    
    
    
    
    
    
    Boat
    
    
    1,346
    
    
    
    1,714
    
    
    
    (368
    )Recreational vehicle
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,346
    
    
    
    1,714
    
    
    
    (368
    )Commercial LoansSecured
    
    
    2,570
    
    
    
    4,554
    
    
    
    (1,984
    )Unsecured
    
    
    341
    
    
    
    184
    
    
    
    157Total
    
    
    2,911
    
    
    
    4,738
    
    
    
    (1,827
    )Total Impaired Loans
    
    $
    77,830
    
    
    $
    84,377
    
    
    $
    (6,547
    )
     20




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##### Table of Contents



Comparison of Operating Results for the Three Months Ended
June 30, 2008 and June 30, 2007
 Net Income.
 Net Interest Income.
  21




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##### Table of Contents



For the Three Months Ended June 30,2008 vs. 2007Increase
    
    
    Totaldecrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (3,364
    )
    
    $
    (616
    )
    
    $
    (3,980
    )Loans held for sale
    
    
    (106
    )
    
    
    (95
    )
    
    
    (201
    )Investment securities:Trading
    
    
    (2
    )
    
    
    7
    
    
    
    5Available for sale
    
    
    28
    
    
    
    730
    
    
    
    758FHLB stock
    
    
    (70
    )
    
    
    6
    
    
    
    (64
    )Other interest-earning assets
    
    
    (99
    )
    
    
    (33
    )
    
    
    (132
    )Total interest-earning assets
    
    $
    (3,613
    )
    
    $
    (1
    )
    
    $
    (3,614
    )Interest-bearing liabilities:Savings accounts
    
    
    15
    
    
    
    (16
    )
    
    
    (1
    )NOW and money market accounts
    
    
    (1,853
    )
    
    
    969
    
    
    
    (884
    )Certificates of deposit
    
    
    (1,064
    )
    
    
    (369
    )
    
    
    (1,433
    )Federal Home Loan Bank advances
    
    
    (1,876
    )
    
    
    (213
    )
    
    
    (2,089
    )Repurchase agreements and other
    
    
    (309
    )
    
    
    204
    
    
    
    (105
    )Total interest-bearing liabilities
    
    $
    (5,087
    )
    
    $
    575
    
    
    
    (4,512
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    898
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 22




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##### Table of Contents



Comparison of Operating Results for the Six Months Ended
June 30, 2008 and June 30 2007
 Net Income.
 Net Interest Income.
    23




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##### Table of Contents



For the Six Months Ended June 30,2008 vs. 2007Increase
    
    
    Total(decrease) due to
    
    
    increaseRate
    
    
    Volume
    
    
    (decrease)(Dollars in thousands)Interest-earning assets:Loans
    
    $
    (6,885
    )
    
    $
    (290
    )
    
    $
    (7,175
    )Loans held for sale
    
    
    (86
    )
    
    
    (183
    )
    
    
    (269
    )Investment securities:Trading
    
    
    1
    
    
    
    4
    
    
    
    5Available for sale
    
    
    130
    
    
    
    992
    
    
    
    1,122FHLB stock
    
    
    (137
    )
    
    
    5
    
    
    
    (132
    )Other interest-earning assets
    
    
    (137
    )
    
    
    2
    
    
    
    (135
    )Total interest-earning assets
    
    $
    (7,114
    )
    
    $
    530
    
    
    $
    (6,584
    )Interest-bearing liabilities:Savings accounts
    
    
    13
    
    
    
    (29
    )
    
    
    (16
    )NOW and money market accounts
    
    
    (2,738
    )
    
    
    1,666
    
    
    
    (1,072
    )Certificates of deposit
    
    
    (759
    )
    
    
    (157
    )
    
    
    (916
    )Federal Home Loan Bank advances
    
    
    (2,957
    )
    
    
    (787
    )
    
    
    (3,744
    )Repurchase agreements and other
    
    
    (136
    )
    
    
    701
    
    
    
    565Total interest-bearing liabilities
    
    $
    (6,577
    )
    
    $
    1,394
    
    
    
    (5,183
    )Change in net interest income
    
    
    
    
    
    
    
    
    
    $
    (1,401
    )
 Provision for Loan Losses.
 Non-interest Income.
 Non-interest Expense.
 24




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UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Three Months Ended June 30,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,211,825
    
    
    $
    33,935
    
    
    
    6.14
    %
    
    $
    2,248,849
    
    
    $
    37,915
    
    
    
    6.74
    %Net loans held for sale
    
    
    9,867
    
    
    
    88
    
    
    
    3.57
    %
    
    
    17,163
    
    
    
    289
    
    
    
    6.74
    %Investment securities:Trading
    
    
    7,565
    
    
    
    68
    
    
    
    3.60
    %
    
    
    6,748
    
    
    
    63
    
    
    
    3.73
    %Available for sale
    
    
    316,014
    
    
    
    3,857
    
    
    
    4.88
    %
    
    
    256,214
    
    
    
    3,099
    
    
    
    4.84
    %FHLB stock
    
    
    25,768
    
    
    
    348
    
    
    
    5.40
    %
    
    
    25,432
    
    
    
    412
    
    
    
    6.48
    %Other interest-earning assets
    
    
    6,400
    
    
    
    93
    
    
    
    5.81
    %
    
    
    7,683
    
    
    
    226
    
    
    
    11.77
    %Total interest-earning assets
    
    
    2,577,439
    
    
    
    38,389
    
    
    
    5.96
    %
    
    
    2,562,089
    
    
    
    42,004
    
    
    
    6.56
    %Noninterest-earning assets
    
    
    164,601
    
    
    
    
    
    
    
    
    
    
    
    144,534Total assets
    
    $
    2,742,040
    
    
    
    
    
    
    
    
    
    
    $
    2,706,623Interest-bearing liabilities:NOW and money market accounts
    
    $
    477,881
    
    
    $
    2,593
    
    
    
    2.17
    %
    
    $
    399,187
    
    
    $
    3,477
    
    
    
    3.48
    %Savings accounts
    
    
    182,425
    
    
    
    195
    
    
    
    0.43
    %
    
    
    191,455
    
    
    
    196
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,079,399
    
    
    
    11,722
    
    
    
    4.34
    %
    
    
    1,111,291
    
    
    
    13,155
    
    
    
    4.74
    %Federal Home Loan Bank advances
    
    
    416,205
    
    
    
    3,191
    
    
    
    3.07
    %
    
    
    434,387
    
    
    
    5,280
    
    
    
    4.86
    %Repurchase agreements and other
    
    
    154,370
    
    
    
    1,638
    
    
    
    4.24
    %
    
    
    141,343
    
    
    
    1,744
    
    
    
    4.94
    %Total interest-bearing liabilities
    
    
    2,310,280
    
    
    
    19,339
    
    
    
    3.35
    %
    
    
    2,277,663
    
    
    
    23,852
    
    
    
    4.19
    %Noninterest-bearing liabilities
    
    
    146,117
    
    
    
    
    
    
    
    
    
    
    
    142,647Total liabilities
    
    
    2,456,397
    
    
    
    
    
    
    
    
    
    
    
    2,420,310Equity
    
    
    285,643
    
    
    
    
    
    
    
    
    
    
    
    286,313Total liabilities and equity
    
    $
    2,742,040
    
    
    
    
    
    
    
    
    
    
    $
    2,706,623Net interest income and interest rate spread
    
    
    
    
    
    $
    19,050
    
    
    
    2.61
    %
    
    
    
    
    
    $
    18,152
    
    
    
    2.37
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    111.56
    %
    
    
    
    
    
    
    
    
    
    
    112.49
    %
  25




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 AVERAGE BALANCE SHEETS
  Six Months Ended June 30,2008
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Cost
    
    
    Balance
    
    
    Paid
    
    
    Cost(Dollars In thousands)Interest-earning assets:Net loans (1)
    
    $
    2,243,330
    
    
    $
    69,743
    
    
    
    6.22
    %
    
    $
    2,251,840
    
    
    $
    76,918
    
    
    
    6.83
    %Net loans held for sale
    
    
    12,443
    
    
    
    276
    
    
    
    4.44
    %
    
    
    20,156
    
    
    
    545
    
    
    
    5.41
    %Investment securities:Trading
    
    
    7,150
    
    
    
    130
    
    
    
    3.64
    %
    
    
    6,905
    
    
    
    125
    
    
    
    3.62
    %Available for sale
    
    
    292,220
    
    
    
    7,155
    
    
    
    4.90
    %
    
    
    251,615
    
    
    
    6,033
    
    
    
    4.80
    %FHLB stock
    
    
    25,603
    
    
    
    680
    
    
    
    5.31
    %
    
    
    25,432
    
    
    
    812
    
    
    
    6.39
    %Other interest-earning assets
    
    
    7,215
    
    
    
    261
    
    
    
    7.23
    %
    
    
    7,175
    
    
    
    396
    
    
    
    11.04
    %Total interest-earning assets
    
    
    2,587,961
    
    
    
    78,245
    
    
    
    6.05
    %
    
    
    2,563,123
    
    
    
    84,829
    
    
    
    6.62
    %Noninterest-earning assets
    
    
    158,311
    
    
    
    
    
    
    
    
    
    
    
    141,914Total assets
    
    $
    2,746,272
    
    
    
    
    
    
    
    
    
    
    $
    2,705,037Interest-bearing liabilities:NOW and money market accounts
    
    $
    455,511
    
    
    $
    5,651
    
    
    
    2.48
    %
    
    $
    388,609
    
    
    $
    6,723
    
    
    
    3.46
    %Savings accounts
    
    
    179,441
    
    
    
    378
    
    
    
    0.42
    %
    
    
    192,829
    
    
    
    394
    
    
    
    0.41
    %Certificates of deposit
    
    
    1,124,077
    
    
    
    25,517
    
    
    
    4.54
    %
    
    
    1,130,838
    
    
    
    26,433
    
    
    
    4.67
    %Federal Home Loan Bank advances
    
    
    402,967
    
    
    
    6,883
    
    
    
    3.42
    %
    
    
    437,536
    
    
    
    10,627
    
    
    
    4.86
    %Repurchase agreements and other
    
    
    156,799
    
    
    
    3,664
    
    
    
    4.67
    %
    
    
    126,426
    
    
    
    3,099
    
    
    
    4.90
    %Total interest-bearing liabilities
    
    
    2,318,795
    
    
    
    42,093
    
    
    
    3.63
    %
    
    
    2,276,238
    
    
    
    47,276
    
    
    
    4.15
    %Noninterest-bearing liabilities
    
    
    143,267
    
    
    
    
    
    
    
    
    
    
    
    141,687Total liabilities
    
    
    2,462,062
    
    
    
    
    
    
    
    
    
    
    
    2,417,925Equity
    
    
    284,210
    
    
    
    
    
    
    
    
    
    
    
    287,112Total liabilities and equity
    
    $
    2,746,272
    
    
    
    
    
    
    
    
    
    
    $
    2,705,037Net interest income and interest rate spread
    
    
    
    
    
    $
    36,152
    
    
    
    2.42
    %
    
    
    
    
    
    $
    37,553
    
    
    
    2.47
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.93
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    111.61
    %
    
    
    
    
    
    
    
    
    
    
    112.60
    %
  26




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 Qualitative Aspects of Market Risk.
 Quantitative Aspects of Market Risk.
   Quarter ended June 30, 2008NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)Changein rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    
    limitations
    
    
    Change in %
    
    
    $ Change
    
    
    limitations
    
    
    % Change+300
    
    
    9.18
    %
    
    
    5.00
    %
    
    
    (1.68
    )%
    
    $
    (5,819
    )
    
    
    (15.00
    )%
    
    
    (7.14
    )%+200
    
    
    9.91
    
    
    
    6.00
    
    
    
    (0.96
    )
    
    
    (3,482
    )
    
    
    (10.00
    )
    
    
    (4.27
    )+100
    
    
    10.42
    
    
    
    6.00
    
    
    
    (0.44
    )
    
    
    (1,420
    )
    
    
    (5.00
    )
    
    
    (1.74
    )Static
    
    
    10.86
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    10.42
    
    
    
    6.00
    
    
    
    (0.45
    )
    
    
    163
    
    
    
    (5.00
    )
    
    
    0.20
 27




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##### Table of Contents



Quarter ended June 30, 2007NPV as % of portfolio value of assets
    
    
    Next 12 months net interest income(Dollars in thousands)Changein rates
    
    
    
    
    
    Internal policy
    
    
    
    
    
    
    
    
    
    
    Internal policy(Basis points)
    
    NPV Ratio
    
    
    limitations
    
    
    Change in %
    
    
    $ Change
    
    
    limitations
    
    
    % Change+300
    
    
    7.99
    %
    
    
    5.00
    %
    
    
    (1.48
    )%
    
    $
    (7,009
    )
    
    
    (15.00
    )%
    
    
    (9.93
    )%+200
    
    
    8.73
    
    
    
    6.00
    
    
    
    (0.75
    )
    
    
    (4,353
    )
    
    
    (10.00
    )
    
    
    (6.17
    )+100
    
    
    9.29
    
    
    
    6.00
    
    
    
    (0.18
    )
    
    
    (2,139
    )
    
    
    (5.00
    )
    
    
    (3.03
    )Static
    
    
    9.47
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100)
    
    
    9.53
    
    
    
    6.00
    
    
    
    0.05
    
    
    
    2,723
    
    
    
    (5.00
    )
    
    
    3.86(200)
    
    
    8.82
    
    
    
    6.00
    
    
    
    (0.66
    )
    
    
    3,467
    
    
    
    (15.00
    )
    
    
    4.91(300)
    
    
    7.90
    
    
    
    5.00
    
    
    
    (1.57
    )
    
    
    3,397
    
    
    
    (20.00
    )
    
    
    4.81
   Potential Impact of Changes in Interest Rates.
  
 ITEM 4. Controls and Procedures
  28




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##### Table of Contents



PART II. OTHER INFORMATION
 UNITED COMMUNITY FINANCIAL CORP.
 
 ITEM 1   Legal Proceedings
  
 ITEM 1A   Risk Factors
  
 ITEM 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 ITEM 6  Exhibits
  ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation3.2
    
    Amended Code of Regulations31.1
    
    Section 302 Certification by Chief Executive Officer31.2
    
    Section 302 Certification by Chief Financial Officer32
    
    Certification of Statements by Chief Executive Officer and Chief Financial Officer
 29




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 SIGNATURES
  UNITED COMMUNITY FINANCIAL CORP.Date: August 7, 2008
    /S/ Douglas M. McKayDouglas M. McKayChief Executive Officer Date: August 7, 2008
    /S/ James R. ReskeJames R. Reske, CFAChief Financial Officer 30




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##### Table of Contents



UNITED COMMUNITY FINANCIAL CORP.
 
 Exhibit 3.1
  Exhibit 3.2
  31